Tuesday, January 09, 2007

An AAPL a Day Keeps the Bears Away

Market Action:
AAPL (Apple) dominated Tuesday’s market with the new iPhone introduction. We find it funny how CSCO owns the rights to this name but is willing to negotiate with AAPL for ownership. At any rate, AAPL added over 8% on the day due to the all in one gadget for music, movies, internet and phone service. We were surprised by the fact that it did Not include third generation broadband, please…Meanwhile, RIMM (the BlackBerry maker) investors were running a little scared due to this “crushing” competitive blow and RIMM fell 8% on the day, a nice balance with the 8% gain that AAPL had.

In the early going, the word was that AAPL was only going to talk about the Mac which caused a little drop in the tech market but after the announcement on the iPhone, techs got going to the upside again. This news just doesn’t seem to have the kind of power behind it to move a whole market like it did on Tuesday.

The other “big” news, which the market deemed to be not market moving, was the announcement from S (Sprint Nextel) that profits would fall in 2007, about 10%. If that wasn’t bad enough, they have decided to lay off about 5,000 employees in 2007. For this news, S dropped over 11% on the day but that news certainly didn’t get publicized nearly as much as the iPhone news. It wasn’t a good day for S shareholders.

Before we move on, we thought we would mention that the Asian market action has been noteworthy this evening with the Japanese and Hong Kong markets down about 1.5% apiece as we write this. This action has lowered the overnight US stock market futures so we will be interested to see what develops in the morning here in the US.

Real Estate:
We have been neglecting the juicy real estate news over the past few days so we thought it time to discuss the fate of the home builders. No matter how hard the national realtors’ association hopes for a bottoming out of real estate, the news keeps piling up on the negative side.

D.R. Horton said its orders fell 23% and cancellations remained high in the fiscal first quarter. They said this decline was slightly better than the fiscal fourth quarter’s 25% fall but that decline was much higher than analyst forecasts. And, while the cancellation rate of 33% in the quarter was better than the 40% experienced in the fourth quarter, the Chairman said that didn’t indicate that demand was rebounding.

In a similar vein, we have been reading about the problems in the subprime mortgage market. Something is brewing there and we want to keep our eyes open for possible media attention to this subject. We just wanted to mention the subject here this evening without going into the details. As the media starts to get into this subject we want you to be informed as to what it is and what it means. For that reason, we will keep the real estate topic on the front burner.

Opinion:
As you all know, we have been saying that ultimately the housing market would overwhelm the stock market forcing it to go down. This thinking process doesn’t seem to have been very accurate with the likes of a six month rally in stocks in spite of the real estate market dropping. We say that the other shoe has not dropped but it will. The financial sphere has managed to keep the dream alive for stock investors but we think the latest move has solidified the complacency of so called long term investors. Long term investors will become even longer term investors as prices go down. They won’t want to sell because they could have had much better prices earlier like now.

Be careful out there, be very careful. Wednesday’s market could surprise to the downside due to the Asian contagion.

Dow Industrials: 12,416.60 -6.89
VIX: 11.91
HUI: 312.79
QQQQ: 44.10
RYVNX: 16.51
RYAIX: 21.11
RYCWX: 35.69
TLT: 89.37
BEGBX: 13.60

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